VetIndia Pharmaceuticals Ltd. v. State of U.P. (2020) - Blacklisting of Commercial Institutions/Organizations

In a significant judgment titled VetIndia Pharmaceuticals Limited vs. State Of Uttar Pradesh in Civil Appeal No. 3647 of 2020 (Arising out of S.L.P. (C) No. 6319 of 2020) delivered as recently as on November 6, 2020, the Apex Court has set aside an indefinite blacklisting order issued in the year 2009 against VetIndia Pharmaceuticals Limited. A three-Judge Bench of the Apex Court comprising of Justices RF Nariman, Navin Sinha and Krishna Murari have held in no uncertain terms that, "An order of blacklisting operates to the prejudice of a commercial person not only in praesenti but also puts a taint which attaches far beyond and may spell the death knell of the organization/institution for all times to come described as a civil death." Absolutely right!

Needless to say, the company which is the appellant in this case was served with an order of blacklisting by the Office of Director, Animal Husbandry Department of UP Government referring to the State Analyst Report declaring the batch supplied by it to be of substandard quality (misbranded/not in accordance with Oxytetracycline injection) thus violating the Tender stipulations. This order was challenged in 2019 before the Bombay High Court which dismissed it on the ground of delay. In appeal, the Bench noticed that the show cause notice issued to the company did not state that action by blacklisting was to be taken or was under contemplation.

To start with, the ball is set rolling in para 2 of this latest, landmark and laudable judgment authored by Justice Navin Sinha for himself, Justice RF Nariman and Justice Krishna Murari after granting leave in para 1 by observing that, "The appellant is aggrieved by indefinite order of blacklisting dated 08.09.2009. The High Court dismissed the writ petition in limine, only on the ground of delay, as having been preferred ten years later."

As it turned out, the Bench then observes in para 3 that, "Ms. Shobha Gupta, learned counsel for the appellant, submits that it holds a valid licence under the Drugs and Cosmetics Act, 1940 (hereinafter referred to as ‘the Drugs Act’) in Form 28 (Rule 76) issued by the Drugs Control Administration, Government of Andhra Pradesh. M/s Palak Pharmaceuticals Private Limited had obtained supplies from the appellant in the year 2007, and in turn had supplied it to the respondent under a tender notice dated 04.10.2006. The label ‘XY0701’ on the injection was an inadvertent human error. The brand name of the medicine was correctly mentioned as "OXY-125". The composition of the medicine was also correctly mentioned as "Oxytetracycline IP Vet 125 mg". The generic word "Hcl" was only missing on the label and it was written as "OXYTETRACYCLINE INJ. I.P. VET" in place of OXYTETRACYCLINE HCL INJ. I.P. VET". It was therefore a case of bonafide inadvertent printing error which resulted in misbranding. The product was not substandard or spurious veterinary medicine."

What ensues next is then stated in para 4 that, "The appellant was served with an order of blacklisting dated 08.09.2009 by the Office of Director, Animal Husbandry Department of the respondent referring to the State Analyst report dated 10.10.2008, declaring the batch supplied by the appellant to be of substandard quality (misbranded/not in accordance with Oxytetracycline injection), thus violating clauses 8.12 and 8.23 of the Tender of 2006-07. The appellant informed the respondents that it had never made any supplies to them under the Tender in question. The misbranding referred to was an inadvertent error. The respondents required certain further clarifications which were furnished on 04.05.2019 but to no outcome. The order of blacklisting is causing great prejudice to the appellant preventing it from participating in similar tenders, the most recent being the rejection by the Government of Rajasthan dated 05.07.2019 for the said reason. No proceedings were taken out by the respondents against the appellant under Sections 23, 25, 26 and 27 of the Drugs Act."

To be sure, it is then envisaged in para 5 that, "The explanation furnished for the delay in the writ petition has not been considered properly. The order of blacklisting being in violation of the principles of natural justice, delay is irrelevant and the cause of action continues because of its indefinite nature and consequences. Learned counsel has relied heavily on Gorkha Security Services vs. Government (NCT of Delhi) & Ors., (2014) 9 SCC 105, to submit that the show cause notice dated 21.10.2008 did not meet the requirement of the law. She has further relied upon M/s Daffodills Pharmaceuticals Ltd. & Anr. Vs. State of U.P. & Anr., 2019 (17) SCALE 758, where this Court opined that a debarment of approximately four years was sufficient."

As anticipated, the Bench then holds in para 7 that, "We have considered the submissions of the parties and are satisfied that the writ petition deserves to be allowed for more than one reason."

Be it noted, it is then pointed out in para 8 that, "The appellant is a licensed drug manufacturer. The drugs in question have been found to be misbranded and not spurious or adulterated. The appellant took the plea of a bonafide inadvertent printing error on the label, by stating OXYTETRACYCLINE INJ. I.P. VET" in place of OXYTETRACYCLINE HCL INJ. I.P. VET". This explanation by the appellant dated 15.11.2008 in reply to the show cause notice finds no consideration by the respondents at any stage. The appellant initially sought to pursue matters with the respondents. On 19.05.2011, the appellant requested the respondents for allowing it to participate in further tenders for 2011-12. The matter was also subsequently followed up by the appellants in writing with the respondents. On 01.05.2019, the appellant again requested to withdraw the order dated 08.09.2009. The respondents on 03.05.2019 rejected the request of the appellant reiterating violation of clauses 8.12 and 8.23 of the Tender of 2006-07. It however sought certain additional information to consider the representation of the appellant which was submitted on 04.05.2019. The appellant was also debarred from consideration by the State of Rajasthan on 05.07.2019 by reason of the impugned order of blacklisting. In absence of any response thereafter from the respondents, the writ petition came to be instituted."

It is also worth noting that it is then observed in para 9 that, "There is no dispute that the injection was not supplied to the respondents by the appellant. Yet the show cause notice dated 21.10.2008 referred to further action in terms of the Tender for supplying misbranded medicine to the appellant. Furthermore, the show cause notice did not state that action by blacklisting was to be taken, or was under contemplation. It only mentioned appropriate action in accordance with the rules of the Tender. The fact that the terms of the tender may have provided for blacklisting is irrelevant in the facts of the case. In absence of any supply by the appellant, the order of blacklisting dated 08.09.2009 invoking clauses 8.12 and 8.23 of the Tender is a fundamental flaw, vitiating the impugned order on the face of it reflecting non application of mind to the issues involved. Even after the appellant brought this fact to the attention of the respondents, they refused to pay any heed to it. Further, it specifies no duration for the same."

Needless to say, it would be relevant to mention that it is then appropriately mentioned in para 10, the key and salient point of which has been stated here that, "M/s Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and another, (1975) 1 SCC 70, held that there could not be arbitrary blacklisting and that too in violation of the principles of natural justice."

Most significantly, it is then very rightly remarked in para 13 that, "In view of the aforesaid conclusion, there may have been no need to go into the question of the duration of the blacklisting, but for the arguments addressed before us. An order of blacklisting operates to the prejudice of a commercial person not only in praesenti but also puts a taint which attaches far beyond and may well spell the death knell of the organisation/institution for all times to come described as a civil death. The repercussions on the appellant were clearly spelt out by it in the representations as also in the writ petition, including the consequences under the Rajasthan tender, where it stood debarred expressly because of the present impugned order. The possibility always remains that if a proper show cause notice had been given and the reply furnished would have been considered in accordance with law, even if the respondents decided to blacklist the appellant, entirely different considerations may have prevailed in their minds especially with regard to the duration."

Going forward, the other key point of para 13 that must be mentioned here is that, "Since the order of blacklisting has been found to be unsustainable by us, and considering the long passage of time, we are not inclined to remand the matter to the authorities. In M/s Daffodills Pharmaceuticals (supra), relied upon by the appellant, this court has observed that an order of blacklisting beyond 3 years or maximum of 5 years was disproportionate."

Finally, the Bench then holds in para 16 that, "The aforesaid discussion, therefore, leads us to the conclusion that the writ petition was not barred by unexplained delay as the appellant had been pursuing the matter with the authorities and it is they who sat over it, triggering rejection of appellants tender by the Rajasthan Government on 05.07.2019 leading to the institution of the writ petition on 24.07.2019. The High Court therefore erred in dismissing the writ petition on grounds of delay. The illegality and the disproportionate nature of the order dated 08.09.2009, with no third party rights affected, never engaged the attention of the High Court in judicious exercise of the discretionary equitable jurisdiction. Consequently, the impugned order of the High Court as well as order dated 08.09.2009 of the respondents are set aside, and the appeal is allowed."

In conclusion, the three-Judge Bench of the Apex Court in this notable case comprising of Justices RF Nariman, Justice Navin Sinha and Justice Krishna Murari very rightly point out that blacklisting orders may cause civil death of institutions. So a great deal of caution should be exercised while issuing blacklisting orders. It must be taken care that blacklisting orders are not issued in haste!

Briefly stated, the Bench then very rightly points out in para 14 as to when the delay can be condoned. Here only the key point is mentioned which states that, "There is no doubt that the High Court in its discretionary jurisdiction may decline to exercise the discretionary writ jurisdiction on ground of delay in approaching the court. But it is only a rule of discretion by exercise of self-restraint evolved by the court in exercise of self-restraint evolved by the court in exercise of the discretionary equitable jurisdiction and not a mandatory requirement that every delayed petition must be dismissed on the ground of delay. The Limitation Act stricto sensu does not apply to the writ jurisdiction. The discretion vested in the court under Article 226 of the Constitution therefore has to be a judicious exercise of the discretion after considering all pros and cons of the matter, including the nature of the dispute, the explanation for the delay, whether any third-party rights have intervened etc. This Court in Basanti Prasad vs. Bihar School Examination Board and others, (2009) 6 SCC 791, after referring to Moon Mills Ltd. Vs. Industrial Court AIR 1967 SC 1450, Maharashtra SRTC vs. Balwant Regular Motor Service AIR 1969 SC 329 and State of M.P. and Others vs. Nandlal Jaiswal and others, (1986) 4 SCC 566 held that if the delay is properly explained and no third party rights are being affected, the writ court under Article 226 of the Constitution may condone the delay." It goes without saying that the Apex Court in this leading case thus very rightly sets aside the indefinite blacklist order against VetIndia Pharmaceuticals Limited which is a pharma company! There can certainly be no denying or disputing it!